3 Issues That Will Affect Transportation Pricing In 2017
Estimated reading time: 4 minutes
The transportation industry in 2016 was very much a “shippers’ market,” where low fuel prices and excess freight capacity reigned. However, the holiday surge at the end of the year gave us a sneak peek into what we can expect in 2017. Experts believe shipping rates will increase this year due to economic growth, higher costs, and ongoing regulatory changes—prompting shippers to reevaluate choices and partnerships across the supply chain. Let’s take a look at a few factors contributing to this shift.
After years of tepid growth, the nation’s GDP should rebound slightly in 2017, bringing with it increased demand for freight capacity. Although 2016 was a weak year for shipping, the Transportation Services Index agrees that solid growth will amplify the gradual rise in shipping demand that began at the turn of this century (Bureau of Transportation Statistics).
US Freight Growth 2000-2016: The TSI for freight shows an upward trend, which is expected to continue in 2017.
Increasing Operating Costs
The cheap fuel prices we’ve grown accustomed to over the past few years are now on the rise since both OPEC and non-OPEC producers have agreed to cut oil production. Domestic diesel prices have already reached their highest point in over a year, yet some trucking companies say the increases won’t impact their pricing just yet because fuel prices remain comparably low and larger fleets have negotiated fuel prices through hedging. However, if prices surge as they did in 2007, from $2.50 to $4.40 per gallon, carriers with 6 or fewer trucks—roughly 90 percent of carriers—will have little choice (TruckingInfo.net). Even large firms will acquiesce when negotiated fuel contracts run out. Because fuel can account for up to 40 percent of expenses, and carriers operate on thin margins, shippers could see the return of fuel surcharges alongside higher prices (The Wall Street Journal).
In addition to fuel costs, wages and equipment costs are likely to rise for carriers of all sizes. Although labor statistics reveal only a 2 percent increase in average wages since 2010, some motor carriers have begun offering much higher compensation (Walmart pays its drivers $80K) to attract and maintain the most qualified professionals as the driver shortage continues (The Wall Street Journal). These increases, as well as upgrades such as dimensional scanning devices and ELD technology, will necessitate price hikes on shipper invoices.
Ongoing Regulatory Pressures
Compliance also carries high costs that will trickle down to shippers. Expenses incurred to meet requirements for the E-logging mandate (ELD), fitness-for-duty and other driver health regulations, and the FDA’s Food Safety Modernization Act, will begin to erode carrier margins in 2017. And, because new Hours of Services (HOS) regulations reduce time on the road by 12 hours per week, per trucker, carriers will have to employ more drivers, pay higher wages, and purchase more equipment to move the same volume of freight (FMCSA).
Keeping Shippers in the Driver’s Seat
The factors that will increase transportation prices in 2017 are already in motion, but shippers need not despair. Taking the following actions can help mitigate price increases:
- Choose carriers and brokers who add tangible value through services to offset rate increases
- Be flexible with appointment and delivery times, and schedule pickups in advance when possible to give carriers more options and negotiate better prices
- Spread out shipments throughout the week to benefit from increased carrier utilization rates
- Opt for drop-and-hook shipping for more efficient pickups and deliveries
- Consider intermodal options where fuel is less of a factor in pricing
Economic change is inevitable in any marketplace and Capstone has experience helping customers navigate challenges along the way, from economic shifts and regulatory compliance to technology upgrades and disruptive trends. Contact us to get the most for your shipping dollars in 2017 and beyond.